‘Acquisition to be finalised by March’: HPCL deal not thrust upon us, says ONGC chairman

The Union Cabinet on July 19 approved a plan to sell the government’s 51 per cent stake in HPCL to ONGC.

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ONGC CMD Shashi Shanker and Director (Offshore) T K Sengupta in Mumbai on Saturday (Express Photo/Pradip Das)

The Cabinet decision of the Oil and Natural Gas Corporation Limited (ONGC) acquiring Hindustan Petroleum Corporation Limited (HPCL) was not thrust upon the state-run oil and gas explorer, according to Shashi Shanker, chairman and managing director of ONGC.

“There is an impression that the deal was thrust upon ONGC. That’s not a fact. After the finance minister made the announcement of integration in his Budget speech, ONGC on its own evaluated the different options available for a vertical integration and we zeroed in on HPCL,” said Shanker in Mumbai on Saturday.

Months after finance minister Arun Jaitley announced the creation of an oil behemoth in his Budget speech, the Union Cabinet on July 19 approved a plan to sell the government’s 51 per cent stake in HPCL to ONGC. While analysts have been critical of the integration, Shanker clarified that the ONGC, after evaluating its options, chose to acquire HPCL.

Shanker said that the Mangalore Refinery and Petrochemicals Limited (MRPL), a subsidiary of ONGC, produced around 15-16 MMT of oil products but did not have a marketing set up. “HPCL on the other hand has around 14,500 retail outlets but are product-deficit. They produce around 15 MMT and can market about 40MMT. That’s a very good fit,” he said adding that a vertical integration would give the company flexibility, given the volatility in crude oil prices.

The company is now in the process of appointing a consultant to work out the financial details of the acquisition. “The deal will be finalised by March next year,” said Shanker, refusing to comment on the price for the deal.

ONGC has also charted out plans to achieve a target set by Prime Minister Narendra Modi to double its production by 2022.

When announced in July, ONGC, one of the richest PSUs with a mount of cash, had pegged the cost of acquiring the 51.11 per cent government stake for around Rs 32,000 crore, but since then HPCL stock has rallied and there are fears that the oil and gas explorer will have to shell out much more than the initial estimate. When completed, ONGC will become the first fully integrated state-run oil and gas company with significant upstream and downstream operations with many refineries and over 14,400 retail outlets.

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On the reported government move to sell up to 60 per cent stake in producing oilfields and gas fields of ONGC, OIL, he said, “We have not got any such proposal. I too read in the newspapers.”

The move comes as the oil ministry is unhappy with the near stagnant oil and gas production and believes giving out the discovered fields to private firms will help raise output as they can bring in technology and capital.It hopes that the move may boost domestic output and help meet the Prime Minister’s target of reducing fossil fuel imports by 10 per cent by 2022. Currently, the country — the world’s third-largest crude importer — buys up to 80 per cent of its supplies from overseas.

After the discovery of the Bombay High oil fields in 1974 and the Bassein gas fields in 1976, the oil and gas behemoth ONGC has not been able to bring in any new major fields into production in the last three decades.

India has failed to draw in global oil majors since 1990 despite easing fiscal terms. The only exceptions are Royal Dutch Shell and BP which bought stakes from firms that had won drilling rights.

(With inputs from PTI)